Auditing and Reporting Assessment 2

This assessment evaluates the student's ability to evaluate information systems, develop implementation plans, review resource use and monitor plans. It includes tasks such as identifying hardware and software needs, analysing organisational procedures and policies, and monitoring sources of data input. The subject is Auditing and Reporting, and the course code is FNSACC602. The document type is an assignment.

T-1.8.1
Details of Assessment
Term and Year T4, 2018 Time allowed Week 2 to Week 7
Assessment No 2 Assessment Weighting 60%
Assessment Type Assignment
Due Date Week 08 Room
Details of Subject
Qualification FNS60217 Advanced Diploma of Accounting
Subject Name Auditing and Reporting
Details of Unit(s) of competency
Unit Code and
Title
FNSACC602 Audit and report on financial systems and records
FNSACC606 Conduct internal audit
Details of Student
Student Name
Student ID College
Student Declaration: I declare that the work
submitted is my own, and has not been copied or
plagiarised from any person or source. Signature: ___________________________
Date: _______/________/_______________
Details of Assessor
Assessor’s Name
Assessment Outcome
Results Competent Not Competent Marks / 60
FEEDBACK TO STUDENT
Progressive feedback to students, identifying gaps in competency and comments on positive improvements:
_______________________________________________________________________
_______________________________________________________________________
______________
Student Declaration: I declare that I have been
assessed in this unit, and I have been advised of my
result. I also am aware of my appeal rights and
reassessment procedure.
Signature: ____________________________
Date: ____/_____/ 2018___
Assessor Declaration: I declare that I have
conducted a fair, valid, reliable and flexible
assessment with this student, and I have provided
appropriate feedback
Student did not attend the feedback session.
Feedback provided on assessment.
Signature: ____________________________
Date: ____/ / 2018
Purpose of the Assessment
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T-1.8.1
The purpose of this assessment is to assess the student
in the following learning outcomes:
Assessment task 2:
Assignment
Satisfactory
(S)
Not yet
Satisfactory
(NS)
Element 1: [Evaluate information systems]
1.1 Evaluate system specifications against user
requirements and feedback to identify redundancies
and constraints, and capacities of information
technology
Activity 01
Q: 01
1.2 Identify hardware and software needs from
assessment of available products and services
Activity 01
Q: 01
1.3 Evaluate possible uses and handling of accounting
data in consultation with users to determine security
requirements
Activity 05
1.4 Analyse organisational procedures and policy to
evaluate scope of strategies for risk management,
internal control of expenditure and compliance with
statutory requirements
Activity 01
Q: 01
1.5 Monitor and record enquiries regarding use of
systems to ensure ongoing evaluation
Activity 05
Element 2: [Develop implementation plans]
2.1 Review internal control systems to determine any
implementation issues that impact on organisational
processes
Activity 05
2.2 Analyse strengths and weaknesses of
organisational processes, including present and future
capacities, and incorporate in implementation plan
Activity 03
2.3 Design implementation to cover outcomes,
resource use, costs, and achievement and
maintenance of professional accounting standards
Activity 03
2.4 Establish schedules that are realistic and feasible
in context of organisation’s short-term and long-term
objectives
Activity 04
Element 3: [Review resource use]
3.1 Monitor sources of data input to identify influences
and variations in returns and costs
Activity 03
3.2 Monitor estimates of stock levels and review to
ensure appropriate stocking and ordering of materials
and inventory items
Activity 03
Activity 05
3.3 Compare records of resource use with unit cost
estimates to evaluate projected costs
Activity 03
3.4 Analyse factors influencing resource use in future
to assess impact on operations and objectives
Activity 05
Element 4: [Monitor plans]
4.1 Adjust implementation to take account of emerging
external influences and establishment of alternative
targets
Activity 4
Activity 05
4.2 Monitor and control costs of plans by evaluating
net benefits to operations from allocation of resources
Activity 4
Activity 05
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4.3 Adjust internal control systems to ensure
maintenance and achievement of accounting
standards
Activity 05
Assessment/evidence gathering conditions
Each assessment component is recorded as either Satisfactory (S) or Not Satisfactory (NS). A student can only achieve
competence when all assessment components listed under Purpose of the assessment section are Satisfactory. Your
trainer will give you feedback after the completion of each assessment. A student who is assessed as NS (Not
Satisfactory) is eligible for re-assessment.
Resources required for this Assessment
 All documents must be created in Microsoft Word
 Upon completion, submit the assessment printed copy to your trainer along with assessment coversheet.
 Refer to the notes on eLearning to answer the tasks
 Any additional material will be provided by Trainer
Instructions for Students
Please read the following instructions carefully
 This assessment has to be completed In class At home
 This assessment is to be completed according to the instructions given by your assessor.
 Students are allowed to take this assessment home.
 Feedback on each task will be provided to enable you to determine how your work could be improved. You will be
provided with feedback on your work within 2 weeks of the assessment due date. All other feedbacks will be
provided by the end of the term.
 Should you not answer the questions correctly, you will be given feedback on the results and your gaps in
knowledge. You will be given another opportunity to demonstrate your knowledge and skills to be deemed
competent for this unit of competency.
 If you are not sure about any aspects of this assessment, please ask for clarification from your assessor.
 Please refer to the College re-assessment and re-sit policy for more information.
Activity - 01 Due: Week 2 10 Marks
(This activity to be completed both in class and at home)
Assessment description
Task 1: As an auditor, how would you ensure the different aspects of General EDP control and
EDP application in an organisation? (6 Marks)
Provide examples in each scenario. (4 Marks)
Your assessor will be looking for:
You judgement and analytical skills as an auditor to below aspects:
General EDP controls and EDP Application controls
● System Specification against user requirement
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● Effective an efficient use of information technology
● Hardware and Software requirement as per organisational needs
● Control over the use of system and segregating of duty
● Record keeping and communication.
Answer:
Usually, internal controls can be detailed in a computer based accounting system which
are of two basic types namely, General controls also known as organization controls and
Application or procedural controls.
To begin with, general controls covers generally the environment in which computer
processing is conducted. The countable objectives of general control include, to ensure
adequate segregation of duties, that is, division of functional responsibilities. Another objective of
the general control is to protect information contained in computer records and many other
objectives. Further, general controls can as well be subdivided into, Systems development and
control and Administrative controls
The system development and control actually covers numerous areas like,
Documentation, Standards, File conversion and Authorization. Changes to operational system or
programs should be subjected to the same controls as initial development. It must be authorized
and controlled.
Therefore, taking system development scenario, as an auditor various consultations
frequently flows because many would want to ensure that sufficient control is present in the new
system to maintain reliable accounting records.
The administrative controls include; segregation or division of duties, Control over computer
operators and file control.
For the side of application controls, it includes, Input, processing, output and master
file controls that is totally computer program based. These controls are to ensure the
completeness and accurate processing of data. Besides, validation checks or data vet or edit
control can be built or programmed into input conversion to validate input for
reasonableness. Examples are types or data vet or field or character check, limit or range
check, existence check, reasonableness check, sequence check, completeness check.
Therefore, there should separation of duties between EDP functions and from those of
users. The effective operations of the systems not only rely on the software but also on the
hardware maintenance. This is greatly because of the fact that there shall be no communication
neither input information nor output information shall occur whenever any computer component
is not properly maintained.
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Activity – 02 Due: Week 3 10 Marks
(This activity to be completed both in class and at home)
Assessment description
Task 1: List at least 4 inherent risks of the following business. What controls you would
suggest mitigating those risks. (6 Marks)
i. A retail business such as a service station/food centre
ii. A construction business
Task 2: Why do you think clearly defined policies and procedures are important for Internal
Control perspective? Please strengthen your answer with examples. (4 Marks)
Your assessor will be looking for:
You judgement and analytical skills as an auditor to below aspects:
● Inherent risks identification based on nature of business.
● Understanding of policies and procedures
● Compliance of Policy and procedures with Statutory requirements
Task 1
(i)
-Competition- the possible high level of competition may be one of the major challenges a retail
business as they may not easily overcome bigger businesses. The appropriate on time remady
against this type of risk is to try having a bit stable backgrounds, quality inventory and good
finance capital base for easily sustainability coping with business environ competitions.
-Theft- retail businesses as well is exposed to theft risks as most retail premises usually lucks
appropriate security. Therefore, theft cases can highly costs retailers incurring losses. To
attempt safety, there must be strong building used for storage and personal surveys most
times.
-Customer injury- due to the unfriendly business environments like Icy sidewalks and rainy days
could lead to huge legal bills for your store if a customer slips and falls.
-Damage to inventory-the stock are at a possible risk of damages. For example, windstorm,
tornado, or power outage could leave your store with a costly surplus of spoiled or damaged
inventory
(ii)
-Equipment damage- A contractor's tools are their livelihood. Without your equipment, the job
simply can't get done. Some tools can be quickly and easily replaced, but for those that can't,
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a Property Insurance policy can be a lifesaver.
- Injuries to third parties and workers- No matter how hard you strive to create a safe work area,
a construction site is a dangerous place full of potential hazards. This can be especially true for
people unfamiliar with safety rules, such as clients who are visiting the worksite. Even veterans
of the construction industry can be hurt on the job, including your employees.
- Faulty work- A construction business may be liable for finished projects that are structurally
unsound, not up to code, or faulty in some other way. If your work doesn't comply with local,
state, and federal building regulations, your client could lose money and look to you for
reimbursement.
- Missed deadlines- There's a reason school teachers enforce due dates for homework. People
in the business world expect projects to be done on time. Building materials can be delivered
too late, tools can break, and plans might have to be redrawn entirely if something unexpected
is discovered.
Task2
Internal control is all of the policies and procedures management uses to achieve various
goals. These goals can therefore confirm the importance of clearly defined policies. Examples
of these goals include;
-Ensure the reliability and integrity of financial information - Internal controls ensure that
management has accurate, timely and complete information, including accounting
records, in order to plan, monitor and report business operations.
-Ensure compliance - Internal controls help to ensure the University is in compliance
with the many federal, state and local laws and regulations affecting the operations of
our business.
-Promote efficient and effective operations - Internal controls provide an environment in
which managers and staff can maximize the efficiency and effectiveness of their
operations.
-Accomplishment of goals and objectives - Internal controls system provide a
mechanism for management to monitor the achievement of operational goals and
objectives.
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Activity – 03 Due: Week 4 10 Mark
(This activity is to completed both in class and at home)
Assessment description
Task 01: Why is it very important to monitor the Data inputs from different sources within an
organisation? Give an example. (4 marks)
Task 02: What are internal and external factors that influence the resources of an organisation? How
do they impact on organisation’s operations and objective?
(6
marks)
Your assessor will be looking for:
Task 01 Identify the different data inputs received from different departments within an organisation
 How to verify those data inputs to ensure data integrity.
Task 02
 Identify the factors both inside and outside of the organisation that influence the company
resources
 Analyse how do they impact on company objectives and business operations
(a)
-Provide constant feedback on the extent to which the projects are achieving their
goals.
-Identify potential problems at an early stage and propose possible solutions.
-Monitor the accessibility of the project to all sectors of the target population.
-Monitor the efficiency with which the different components of the project are being
implemented and suggest improvements.
(b)
-Provide guidelines for the planning of future projects.
-Influence sector assistance strategy. Relevant analysis from project and policy
evaluation can highlight the outcomes of previous interventions, and the strengths and
weaknesses of their implementation.
-Improve project design. Use of project design tools such as the log frame (logical
framework) results in systematic selection of indicators for monitoring project
performance. The process of selecting indicators for monitoring is a test of the
soundness of project objectives and can lead to improvements in project design.
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T-1.8.1
-Incorporate views of stakeholders. Awareness is growing that participation by project
beneficiaries in design and implementation brings greater “ownership” of project
objectives and encourages the sustainability of project benefits. Ownership brings
accountability. Objectives should be set and indicators selected in consultation with
stakeholders, so that objectives and targets are jointly “owned”. The emergence of
recorded benefits early on helps reinforce ownership, and early warning of emerging
problems allows action to be taken before costs rise.
-Show need for mid-course corrections. A reliable flow of information during
implementation enables managers to keep track of progress and adjust operations to
take account of experience.
Activity – 04 Due: Week 5 10 Marks
(This activity to be completed both in class and at home)
Assessment description
Task 01: Imagine, you are an Internal Auditor of ACA and you meant to do following tasks. Please
justify your answer with examples.
i. What Monitoring techniques you can apply for documentation purpose. Please also advise which one do
you think is the most cost effective control? (4 Marks)
ii. What external influences do you need to consider while implementing those controls?
(3 Marks)
iii. State the important aspects of reviewing in the evaluation process? (3 Marks)
Your assessor will be looking for:
You judgement and analytical skills as an auditor to below aspects:
● Documentation techniques of Monitoring for internal control
● Capabilities and influences of stakeholders, competitors and regulators.
● Review process of evaluation.
Answer:
Business performance monitoring- for a successful business, full understanding of the
major sources of problems and opportunities is worth considerable. A business that is being
managed without fully understanding its sources opportunities as well as existing problems easily
results in unnecessary cost incurred or even loosing profit.
Another monitoring technique is the determining specifically whatever is being measured
and how it is measured. The process of determining what is being measured is appropriately
important for proper business monitoring this is supported by the common need of a fact-based
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T-1.8.1
analysis of data that helps in further focus effects on specifically very successful tactics.
Therefore, ready measurement as well has the capacity to make it clear I aiming for
improvements.
The most preferable monitoring technique is the business performing monitoring as its worth
considerable as the most cost effective control.
Activity – 05 Due: Week 5 20 Marks
(This activity to be completed both in class and at home)
Assessment description
This is a case study. Students are required to complete this task both in class and at home.
While in class, discuss the outcome, findings etc. with the teacher. At home, students can do
their own research by other reference books, internet etc.
Your assessor will be looking for:
The purpose of the case study is to relate the broad principles and features of a system of internal control
to a real world business application. As you identify the different components of an accounting system,
refer to the case study and see how the various features can be found. This case study will be used in the
assessment task at the end of
this section.
Case study – Audit of Downers Ltd.
Introduction
Samuel Vouch, an audit supervisor, has been assigned a new client, Downers Ltd. He is asked to
evaluate the company's internal control system with the object of preparing a preliminary audit program.
Vouch arranges to visit the company and speak to key personnel in the accounting department. He is
introduced to Frank Boss, the Managing Director, and a formal conversation is held:
A. Supervisor What I would like to do first is get as much formal information as possible on all
aspects of the company operations particularly those with a bearing on how
effectively the system of internal control operates.
M. Director Can you give me some examples of the type of information you require?
A. Supervisor A statement of operating policies, an organisation chart, a manual of
procedures, job specification files and duty lists for each position in the
company. And a manual of accounts.
M. Director Quite an exhaustive list. I'll give a secretary a buzz to see whether the files
exist. Our previous auditors put a lot of emphasis on the internal control
questionnaire. Will you do the same?
A. Supervisor Yes. It is an important audit technique for gathering facts about each area of
the internal control system.
I would like to catch up with your principal accounting officer in the next couple of
days. He should be able to help me answer a lot of the questions contained in
the ICQ.
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Samuel Vouch is given a guided tour of the company's office, purchasing and sales sections and the
warehouse. After brief exchanges with the financial accountant, the sales manager and the stores
supervisor, Vouch returns to the Managing Director's office. He receives the following documents/files:
(a) Organisation chart: refer work paper A2
(b) Statement of operating policies: refer work paper A3
(c) Manual of procedures: refer work paper A5
(d) Job specification files
(e) Manual of accounts.
To review the internal control procedures of a trading enterprise such as a wholesaler or a retailer, Vouch
divides the system into two main cycles:
(a) The revenue cycle which consists of sales (credit and cash), trade debtors and
cash receipts
(b) The payments cycle which consists of purchases (credit and cash), trade creditors and cash
payments (creditors and expenses, such as payroll)?
The manual of procedures for Downers Ltd was prepared quickly and unprofessionally at the inception of
the company. It provides Vouch with few details about the current sales, purchasing, and financial
operations.
Vouch's first aim, therefore, is to obtain up-to-date information. He decides to tackle the revenue cycle
first.
Vouch has detailed discussions with the various managers, supervisors and key employees. He also
briefly examines the various forms, documents and records produced by the finance and sales segments.
From this investigation, Vouch is able to prepare:
(a) Internal control questionnaires (ICQ) for sales, accounts receivable and cash receipts (refer to work
papers B1 -4)
(b) Flow charts of the above (refer to work papers (C1-3)
(c) Management letter of the internal control weaknesses for the systems covered above
(refer to work papers D1-3).
WORK PAPER A1
PREPARED BY S. Vouch
Client Downers Ltd
Period 30 June 1997
Extract from Memorandum of Association
1. Shares. Registered as a public company on 5 August 1978.
2. Objects of the company
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T-1.8.1
‘...to buy, import, sell and export, repair and generally deal in goods and merchandise, and without
restricting the foregoing, in particular to buy, import, sell and export, repair and deal in swimming pool
accessories, and leisure products.’
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T-1.8.1
Client Downers Ltd
Period 30 June 1997
Extract from Statement of Operating Policies
Accounting Records and Control
1 Formal chart of accounts to be maintained.
2 General ledger and subsidiary ledger to be kept up-to-date and balanced at least monthly.
3 Budgets to be prepared covering:
(i) Revenue
(ii) Cash
(iii) Purchases
(iv) Operating expenses
(v) Capital expenditure.
4 Insurance policies to be maintained for all insurable risks.
5 Duties of accounting employees are to be rotated on a regular basis.
WORK PAPER A4
PREPARED BY S. Vouch
Client Downers Ltd
Period 30 June 1997
Extracts from Manual of Procedures
Sales and Debtors
General
The company distributes its products through two outlets:
(a) Retail counter and showroom
(b) Wholesale section and warehouse.
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WORK PAPER A3
PREPARED BY S. Vouch

T-1.8.1
Retail trade is exclusively cash and carry but wholesale trade may be for cash or by credit.
While a considerable volume of cash trade is normally undertaken the greater monetary value of sales
results from telephoned orders handled by the wholesale section.
Wholesale credit sales
1 Order clerk to enter details of credit sales on pre-numbered invoice sets of:
(i) White - original to customer (sent with goods)
(ii) Yellow - carrier's copy
(iii) Green - delivery docket (returned by customer)
(iv) Pink - sales order copy (retained in stores)
(v) Blue - accounts copy
2 Order clerk to contact credit department to determine credit standing of customer.
3 Carrier's copy to be signed by customer upon delivery and to be returned to despatch section on
same day.
4 Invoice price list to be reviewed by the sales manager at least monthly.
5 Credit returns - credit notes to be composed with receiving reports by despatch clerk.
Credit allowances - credit notes to be checked against applicable documentation by
accounts clerk.
All credit notes to be approved by the sales manager.
6 The following records are to be prepared by the accounts receivable section each month:
 aged debtors’ trial balance
 debtors’ statement
7 Credit manager to regularly review each customer’s credit limit, especially
overdue accounts.
Collections from debtors
1 Mail opener to prepare a daily listing of cheques received from debtors.
2 All debtors’ cheques to be passed on to Cashier's section for preparation of bank deposit slip (in
duplicate).
3 Cash receipts to be deposited daily at bank by company messenger.
4 Financial accountant to compare cheque listing against cash book at least weekly.
Questions: Please answer the following questions (4 * 5 = 20 Mark)
(a) List at least six material departures (internal control weaknesses) from the controls previously noted
(b) Explain why each material departure violates sound internal control principles.
(c) Identify the internal control weaknesses in the purchases and accounts payable systems
(d) Recommend alternate procedures which would overcome the weaknesses and strengthen internal
control in these areas.
Answer
(a) - Weaknesses in cash receipts
- Weakness in payroll system
-Weakness in internal audit control system
-Weakness in financial management internal control
-Weakness in maintaining of accuracy and integrity.
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(b)
-The weakness in cash receipt is a factor hindering smooth operation of internal control.It’s
not enough to simply create an overall cash handling policy.
-For the weakness in payroll system, Human resources should establish clear procedures for
requesting time off and changes to employee pay rates. Signatures should be required for
any transaction affecting an employee's rate of pay or payroll processing.
- Internal controls represent the specific policies the business owner, manager and
employees must follow in the business. Internal audit control systems have a few
weaknesses that business owners must address.
(c)
-Weakness in the reconciliation activities- Performing monthly ledger reconciliations to catch
improper charges and validate transaction has been realized to fail in reaching the expected
standards.
-Weakness in securing assets- this has contributed in poor account for resources. therefore
periodically counting for inventory and compare the results with amounts is not fully shown on
control records.
- Weakness in Accountability, authorization, and approval- Accountability ensures that you
authorize, review, and approve invoices for payment based on signed agreements, contract
terms, and purchase orders. This has not been fully possible as always expected.
(d)
The recommendable alternative is Separation of duties- this step can enhance ensuring that
payment documents are processed correctly by having different people involved in the
payment process. This principle is called separation of duties.
Questionnaires on internal control
Introductory note
'Yes' signifies that the procedure is satisfactory and conforms to sound principles of
internal control.
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'No' indicates that the procedure and associated controls are not carried out
by the business or that the procedure may not be carried out according to sound principles of internal
control. For example, the employee who performs the particular task may also carry out other conflicting
tasks or some internal check may be absent (for instance documents are prepared but they are not pre-
numbered).
'N/A' indicates that the procedure does not apply because the relevant transaction is not undertaken by
this business or specific documents, records or internal checks relating to this procedure are not carried
out.
'Employee or authorising body' represents the individual or group which performs one of the following
functions:
(a) authorisation of transaction
(b) recording of transaction
(c) custody of assets resulting from transaction
(d) approval of transaction.
Comments: 'No' answers usually signify a ‘major’ or ‘minor’ internal control weakness. A brief description
of the weakness and any other procedure carried out which would reduce the audit significance of the
weakness should be noted here.
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WORK PAPER B1
PREPARED BY S. Vouch
Questionnaire on Internal Control
Sales
Yes No
(or N/A)
Employee or
authorising
body
Comments
(Major or minor
weaknesses)
1 Are all sales orders received from
customers in writing?
 Sales order
clerk
Minor weakness –
industry practice
2 If not, how are sales orders
received? (list)
combination of mail, telephone
and
over the counter orders
3 Is there approval of:
(a) acceptance of customer order?
(b) credit rating?
(c) price and discounts?
(d) terms?




Credit officer Major weakness:
no written credit
authorisation.
Prices are inserted by
Sales order clerk from
official price list.
4 Is the customer’s credit limit
regularly reviewed?
 Credit manager Major weakness:
only subject to a
thorough examination if
account
is overdue.
5 Are delivery dockets prepared for all
outward movements of goods:
(a) Pre-numbered?
(b) checked with invoice and
cross-referenced?
(c) accounted for in regard to
sequence (including cancelled
dockets)?



Sales order
clerk
Sales order
clerk
Delivery docket is a
copy of invoice
Major weakness:
no evidence that all
deliveries are made to
customers
6 Are goods delivered only on pre-
numbered stock requisition or
delivery docket?
 Despatch clerk
7 Are goods compared with packing
slip or delivery docket or invoice prior
to delivery?
 Despatch clerk
8 Is proof of delivery accounted for
filed?
 Despatch
section
Carrier’s copy is signed
by customer and filed.
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Client Downers Ltd
Period 30 June 1997

T-1.8.1
Yes No
(or N/A)
Employee or
authorising
body
Comments
(Major or minor weaknesses)
9 Are invoices:
(a) prepared (if so, give number
of copies)?
(b) pre-numbered?


Sales order
clerk
Printer
Five copies
10 Is the invoice sequence checked at
time of recording (including
cancelled invoices)?
 Sales order
clerk
11 Are invoiced prices determined from
price lists
(a) properly authorised?
(b) regularly updated?

 Sales order
clerk
12 Are invoices checked by an
independent employee as to:
(a) prices?
(b) extensions and additions?
(c) discounts?
(d) correlation with delivery dockets?




}Sales manager
Major weakness:
No internal check over
accuracy and validity of
invoice details.
13 Are stocks of and issue of unused
delivery dockets and invoices
properly controlled?
 Stationery
officer
Delivery docket is a carbon
copy of invoice
14 Is there a check between the total of
the invoices prepared by the
Invoicing department and the total
charged to customer accounts by the
ledger keeper?
 Accounts clerk
15 Are complaints, both written and
telephoned from customers sent
direct to Sales manager? If not, to
whom?
 Major weakness:
Complaints are handled by
Sales order clerk.
No independent check on
the validity of complaints.
16 Are credit notes raised for all returns
and allowances:
(a) pre-numbered?
(b) compared with supporting data
and receiving reports where
required?
(c) properly authorised?
(d) all accounted for (including
cancelled notes) and
authorisations checked?
(e) recorded daily in sales returns
and allowances journal?






Printer
Despatch clerk
- returns
Accounts clerk
-
allowances
Sales manager
Machine ledger
keeper
Major weakness:
No guarantee that credit
notes raised for all returns
and allowances.
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WORK PAPER B2
PREPARED BY S. Vouch
Questionnaire on Internal Control
Accounts receivable
Client Downers Ltd
Period 30 June 1997
Yes No
(or N/A)
Employee or
authorising
body
Comments
(Major or minor
weaknesses)
Accounts receivable
1 In a separate debtor’s ledger
maintained?
 Accounts
receivable clerk
2 If so:
(a) is it balanced monthly?
(b) is the total of the individual
accounts regularly compared to
the control account in the
general ledger?


Accounts
receivable clerk
Financial
accountant
3 Do bookkeepers on accounts
receivables perform any duties other
than recording of this ledger?
 Examine debtor’s
statements. Handle
disputed items on
statements
4 Are these bookkeepers rotated? 
Debtors statement
5 Are monthly debtors
statements prepared?

6 If so, are they:
(a) sent to all debtors?
(b) checked to the debtor’s ledger
before despatch?
(c) mailed independently of cashier
and bookkeeper?



Mailing section
Mailing section
Minor weakness:
Random sample of
statements are checked
by Accounts receivable
officer
7 Are disputed items or
statements investigated?
 Accounts
receivable clerk
8 Are credit balances properly watched
and handled?
 Accounts
receivable clerk
9 Is the payment of credit balances
properly approved?
 Financial
accountant
Auditing and Reporting, Assessment 2, v1.0 Page 19

T-1.8.1
Yes No
(or N/A)
Employee or
authorising
body
Comments
(Major or minor
weaknesses)
Credit control
10 Are debtor’s accounts aged
monthly?
 Accounts
receivable clerk
11 Is any independent check made of
the ageing analysis?
 Credit officer
12 Are overdue accounts periodically
reviewed and followed up by a
senior official?
 Credit officer
13 Are bad debt write-offs:
(a) supported by proper
documentation?
(b) approved by an independent
senior official?

Credit manager
Minor weakness:
Bad debt write-offs are
initiated by the credit
department. No
independent check on
whether these write offs
are bona fide.
14 Are accounts written off:
(a) controlled by an independent
senior official?
(b) regularly reviewed?


Major weakness:
No control is exercised
over accounts once they
are written off except if
partial payments are
subsequently received.
15 Are accounts confirmed on a
surprise basis at reasonable
intervals by responsible officials?
 Serious weakness:
because there are no
offsetting procedures to
check the accuracy of
each debtors account.
Auditing and Reporting, Assessment 2, v1.0 Page 20

T-1.8.1
WORK PAPER B3
PREPARED BY S. Vouch
Questionnaire on Internal Control
Cash receipts
Yes No
(or N/A)
Employee or
authorising
body
Comments
(Major or minor
weaknesses)
1 (a) Is the mail opened by two responsible
individuals other than the cashier or
accounts receivable bookkeeper?
(b) Are cheques crossed by person opening
mail before being available to any other
person?
(c) Does person opening mail prepare a list of
the remittances received?
(d) Is this list compared by another
responsible person with the details later
recorded in the cash receipts journal?




Secretary to
Finance
Director
Secretary only
prepares a tape
listing of receipt
amounts.
Financial
accountant
checks total of
tape listing
against bank
deposit slip (at
least weekly)
2 (a) Do cash receipts include a significant
amount of currency?
(b) If so, are receipts issued and properly
controlled? (refer ICQ for cash sales B5)
3 Does the company issue duplicate pre-
numbered cash receipt forms for all:
(a) unusual receipts?
(b) usual trading receipts? 
 }Cashier
(c) currency?
(d) requests for copy receipts?
If so, how are they issued and who authorises
their issue?
 }Cashier Copies of receipts
are reviewed
spasmodically by
the financial
accountant
4 (a) Is any money collected outside the office
(e.g. by travellers)?
(b) If so, do they issue receipts?
(c) Are these receipts official or interim?
(d) What is method of control over
these receipts?
N/A
Auditing and Reporting, Assessment 2, v1.0 Page 21
Client Downers Ltd
Period 30 June 1997

T-1.8.1
Yes No
(or N/A)
Employee or
authorising
body
Comments
(Major or minor
weaknesses)
5 (a) Is there a receipt book register?
(b) Who controls the isue of all
forms relating to cash receipts?
(c) Is the sequence of receipts
checked (including cancelled
receipts)?


Stationery
officer
Cashier
6 (a) Is a daily bank deposit prepared?
(b) Are all cash receipts deposited
intact daily by responsible
emplyees other than the cashier
or bookkeeper?
(c) Are duplicate deposti slips
stamped by bank, compared with
cash receipts journal, and
properly filed?


Cashier
Company
messenger
b) Major weakness:
No independent check on
accuracy and
completeness of the bank
deposit slip and cash
receipts journal
7 Are all persons handling cash
receipts, individuals who do not have
any other duties connected with
receivables, such as credit and
collection, preparation of sales
journal, posting of debtors’ ledger?

8 Are receipts from the following forms
of sundry revenue independently
checked and controlled:
– Rental?
– sundry sales of stationery?


Cashier
Stationery
officer
Major weakness:
No independent records
are kept of receipts from
sundry revenue.
Auditing and Reporting, Assessment 2, v1.0 Page 22

T-1.8.1
WORK PAPER B4
PREPARED BY S. Vouch
Questionnaire on Internal Control
Cash sales
Client Downers Ltd
Period 30 June 1997
Yes No
(or N/A)
Employee or
authorising
body
Comments
(Major or minor
weaknesses)
1 Are receipts from cash sales and other
over the counter collections recorded
by:
(a) cash registers (refer question
5 below)?
(b) serially numbered receipts (or
sales documents)?


2 Are daily totals of cash registers or
other mechanical devices verified by
an emplyee not having access to
cash?
 Cashier Major weakness:
No internal check over
the accuracy of the
cash recording on cash
register.
3 Are cash sales documents checked as
to:
(a) prices?
(b) additions and extensions?
(c) discounts (trade only)?



Cashier
Major weakness:
No independent check
of details contained on
cash sale dockets.
4 Are goods only released to customers
after receipt of money?

Cash registers
5 Are the registers read daily? 
6 Are the clearance and readings
carried out by persons independent of
employees using the registers?
 Sales manager
7 Is a record prepared of the register
readings?
 Sales manager Record given to cashier
to prepare bank deposit
slip
8 Is the record periodically
compared with:
(a) bankings (bank deposit slip)?  Cashier Major weakness:
No independent check
(b) cash book?  Financial
accountant
Auditing and Reporting, Assessment 2, v1.0 Page 23

T-1.8.1
9 Are surprise checks made to prove
the correctness of:
(a) register change and takings?
(b) over and unders?


Major weakness:
in view of the
concentration of duties in
cashiers section
10 Are the results of the surprise
checks recorded and available for
scrutiny by the external auditors?
N/A
Questionnaire on Internal Control
Purchases
Client Downers Ltd
Period 30 June 1997
Yes No
(or N/A)
Employee or
authorising
body
Comments
(Major or minor
weaknesses)
Procedure
Requests for stock
1 Are properly prepared requisitions
raised for each purpose:
(a) pre-numbered?
(b) authorised by responsible
officer?


Sales manager
and store
manager
(as above)
Ordering of stock
2 Is all stock ordered through a central
purchasing department?

3 Are pre-numbered purchase orders
issued for all purchases:
 Purchasing
clerk
(a) priced?
(b) independently checked with
stock (purchase) requisition?
(c) signed by responsible official? 

Purchasing
officer (less
than $1,000)
Purchasing
manager
(greater than
$1,000)
(d) sequence accounted for
(including cancelled orders)?
 Major weakness:
Some orders may be
misplaced and no
purchase transaction
occurs as a result
4 Are purchase orders forwarded
direct to:
(a) accounts department?
(b) goods inward department?
(c) requesting department?



Auditing and Reporting, Assessment 2, v1.0 Page 24
WORK PAPER B5
PREPARED BY S. Vouch

T-1.8.1
5 Are suppliers selected on the basis
of prices, terms, delivery time and
other relevant factors?
 Major weakness:
Purchasing officer
selects suppliers on
basis of past reputation.
The selection may
ignite other important
factors
Yes No
(or N/A)
Employee or
authorising
body
Comments
(Major or minor
weaknesses)
Receipt of stock
6 Are all incoming goods (and fixed
assets) cleared through a goods
inwards (or receiving department)?
 Major weakness:
Purchasing officer
selects suppliers on
basis of past reputation –
may ignite other
important factors
7 Is a special receiving record
prepared for all incoming goods
(including sales returns)?
 Very infrequent
transaction.
Delivery docket is used
by goods inward clerk as
a receiving record
8 If so, is it:
(a) pre-numbered? N/A Delivery dockets are pre-
numbered
(b) checked for quantities (against
purchase order/deleivery
docket)?
 G I clerks
(c) checked for condition and/or
quality?
 G I clerks
(d) approved by responsible
officer?
 Minor weakness: Only
approved by goods
inwards Manager if there
is a discrepancy between
order & delivery docket
(e) accounted for in accounting
department (including
cancelled dockets) in regard to
sequence?
 Major weakness:
No guarantee that all
deliveries have been
received and
accounted for
9 Are goods sent directly to store in:
(a) physical control of storeman?
 Store manager
(b) restricted access to authorised
employees?

Auditing and Reporting, Assessment 2, v1.0 Page 25

T-1.8.1
Payment of stock
10 Are suppliers’ invoices received:  Purchasing
department
Major weakness:
No independent check
on the purchasing and
ordering function
(a) sent direct to the accounting
department?

(b) compared with purchase order?  Accounts clerk
(c) compared with receiving (goods
inward) record and inspection
report (if applicable)?
 Major weakness:
No guarantee that
quantities on purchase
orders ha
Purchases (continued)
Auditing and Reporting, Assessment 2, v1.0 Page 26

T-1.8.1
Auditing and Reporting, Assessment 2, v1.0 Page 27

T-1.8.1
Auditing and Reporting, Assessment 2, v1.0 Page 28

T-1.8.1
WORK PAPER D1
PREPARED BY S. Vouch
Client Downers Ltd
Period 30 June 1997
Management Letter
Internal control
weakness
Reason for weakness
(potential audit
significance)
Offsetting strength (if
any)
Recommended action (or
alternative procedures)
Credit sales
1 Customer orders are
not reviewed and
approved by the
sales manager
2 No written credit
authorisation is
received from the
credit department
3 The credit manager
does not review each
customer’s credit limit
on a formal and
regular basis.
4 The sequence of
delivery dockets
issued is not
accounted for at a
later date by an
independent
employee.
5 No independent
crosscheck is made
on the data contained
on sales invoice (e.g.
Orders may be accepted
and fully documented
which cannot later be
filled. Loss of customer
goodwill may result.
Difficult to earmark
responsibility for credit
granted to customers
who later turn out to be
doubtful.
Sales order clerk may
short – circuit the
procedure in the interest
of expediency.
Therefore, creditworthy
customers may be given
credit terms.
Some account balances
may go above an
acceptable credit limit.
This may cause difficulty
in collecting the balance.
Some delivery dockets
may be misplaced or
deliberately concealed.
Therefore there is no
evidence that all
deliveries have been
made.
There is no guarantee of
the clerical accuracy of
NIL
Verbal authorisation is
given by the credit
department.
The customer is
required to sign the
carrier’s copy which is
returned to dispatch
department.
Nil
Any credit arising from
the complaints must be
Auditing and Reporting, Assessment 2, v1.0 Page 29

T-1.8.1
prices, quantities,
additions, etc.)
6 Customer complaints
are not handled by
the proper authority,
they are reviewed by
the sales order clerk.
invoices. There is no
guarantee against the
issue of bogus or
incorrect invoices.
The sales order clerk
has conflicting duties, so
there is no independent
and impartial check on
the validity of customer
complaints.
authorised by the sales
manager.
Internal control
weakness
Reason for weakness
(potential audit
significance)
Offsetting strength (if
any)
Recommended action (or
alternative procedures)
7 Documentation
supporting the return
of goods is not
checked by an
independent officer.
8 Credit notes are
authorised by the
sales manager but
are not approved by
an independent
senior official
The dispatch clerk is
involved in both the
delivery of goods to the
customer and the
subsequent return of
those goods. Therefore
the credit transaction
may not be reviewed
properly.
(i) Credit notes could be
used to cover up
stock or cash
defalcations.
(ii) Sales manager is
intimately involved in
sales, so this credit
activity could be in
conflict with his
primary duty.
Credit notes are
authorised by a senior
official.
Sales manager occupies
a position of
responsibility. He would
be familiar with the
nature of credit return
and allowances.
9 The sequence of
credit notes issued,
including cancelled
notes, is not
accounted for. The
authorisation on
credit notes is not
checked.
Some credit notes may
be lost or deliberately
misplaced and therefore
not included in the
accounting records.
There is no guarantee
that credit notes are
properly authorised
(refer to no. 8).
Accounts receivable
1 The bookkeepers on
the accounts
receivable ledger
perform conflicting
There is no independent
check on the accuracy
of the debtors’
statement and the
Random selection of
debtors’ statements are
reviewed by Accounts
Receivable Officer.
Auditing and Reporting, Assessment 2, v1.0 Page 30

T-1.8.1
duties such as
preparation of
debtor’s statements
and handling
disputed items on
statements.
2 Not all debtors’
statements are
checked to the
accounts receivable
ledger before they
are released.
3 No approval is given
for the write off of
bad debts initiated
by the credit
department.
validity of the disputed
items.
Errors in the debtors’
statement may be
overlooked, unless
picked up by
the customer.
There is no independent
check on whether the
bad debts written off are
bona fide.
Refer to no. 1 above.
Internal control
weakness
Reason for weakness
(potential audit
significance)
Offsetting strength (if
any)
Recommended action (or
alternative procedures)
4 No control is
exercised over
debtors’ accounts
once they are
written off to a nil
balance.
5 Debtors’ accounts
are not confirmed on
a surprise basis by a
responsible official.
Cash from such
accounts may be
accidentally or
deliberately overlooked.
Therefore receipts may
be omitted from the
accounting records.
There is no independent
check on the accuracy
of information contained
in the accounts
receivable ledger.
Auditing and Reporting, Assessment 2, v1.0 Page 31

T-1.8.1
WORK PAPER D1
PREPARED BY S. Vouch
Client Downers Ltd
Period 30 June 1997
Internal control weakness Reason for weakness
(potential audit
significance)
Offsetting strength (if
any)
Recommended action (or
alternative procedures)
Cash receipts
1 Only one employee
opens the mail. S/he
crosses the debtors’
cheques and prepares
the tape listing of
cheques received.
2 The mail opener does
not prepare a detailed
record of remittances
received.
3 The cashier does not
issue duplicate pre-
numbered cash receipt
forms for
miscellaneous receipt
such as collections
from the sale of
stationery items (refer
to no. 6 below.)
4 The sequence of
receipts, including
cancelled receipts, is
not checked to ensure
that all are accounted
for.
5 There is no
independent
comparison between
bank stamped deposit
slips and cash receipts
journal.
The duties of the mail
opener are not reviewed
to ensure that they are
carried out satisfactorily.
Therefore, accidental or
deliberate omissions
may occur.
The tape listing
prepared by the
secretary does not give
sufficient information to
thoroughly crosscheck
the accuracy of the bank
deposit slip and cash
receipt record.
Miscellaneous receipts
may not be properly
accounted for and
therefore included in the
cash records when
received.
Receipts issued may be
omitted from the cash
book (refer to no. 3
above).
Any under banking of
receipts or errors in the
cash book will not be
detected promptly.
The secretary is not
involved in other cash or
debtors functions.
Therefore it would be
difficult for her to
conceal a
misappropriation of
incoming cheques.
Tape listing of individual
amounts and total daily
receipts.
The financial accountant
checks the amounts on
the mail opener’s tape
listing with the bank
deposit slip.
The mail should be
opened by two
employees, one of
whom crosses the
cheques and the other
who prepares a record
of the cheques.
All remittances should
be recorded daily and in
detail in an inwards
remittances register.
Duplicate pre-numbered
receipt forms should be
issued for all receipts.
These forms should be
approved by an
independent senior
officials to verify the
correctness of the
transaction.
The sequence of all
receipts should be
checked regularly by a
clerk not involved in
cash handling or
recording.
The financial accountant
should regularly match
the contents of the
deposit slip (bank
Auditing and Reporting, Assessment 2, v1.0 Page 32

T-1.8.1
stamped), and cash
book to ensure that
errors are quickly
detected and rectified.
Internal control
weakness
Reason for weakness
(potential audit
significance)
Offsetting strength (if
any)
Recommended action (or
alternative procedures)
6 There is little control
over miscellaneous
sources of receipts,
e.g. collections from
sales of stationery.
These receipts can be
easily misappropriated
and/or only brought to
account on an irregular
basis.
Record maintained by
stationery officer of cash
received from sales.
Independent records
should be maintained of all
miscellaneous income.
These records should be
regularly checked by a
responsible official to
establish that correct
amounts were received
and banked.
WORK PAPER D3
PREPARED BY S. Vouch
Client Downers Ltd
Period 30 June 1997
Internal control weakness Reason for weakness
(potential audit
significance)
Offsetting strength (if
any)
Recommended action (or
alternative procedures)
Cash sales
1 No evidence that
details of the cash sale
documents are
properly checked.
2 Cash received from
over the counter sales
is not independently
checked against the
internal audit tapes
and the bank deposit
slip.
3 Surprise cash checks
are not made to prove
Errors on the cash sales
documents will not
always be detected.
Therefore the customer
could be over or under
charged.
Cash should be
removed by the cashier
and this would not be
detected.
Record of daily cash
sales (as per the cash
register) is checked
against the cash book
by the Financial
accountant.
All cash sales
documents should be
checked as to
- price, additions and
extensions
- trade discounts
by an employee not
involved in the sales of
cash functions.
Cash received from over
the counter sales should
be balanced against the
internal audit tapes and
checked to the daily
bank deposit slip by a
responsible officer who
has no other sales or
Auditing and Reporting, Assessment 2, v1.0 Page 33

T-1.8.1
the correctness of the
cash register
procedures.
The anomalies
mentioned in
2 and 3 above could
occur.
cash functions.
The internal auditor
should conduct surprise
cash checks on all
procedures relating to
cash sales.
Auditing and Reporting, Assessment 2, v1.0 Page 34